Scripted Interview 

Sofia: How were you able to investigate your topics? 

Avery: We used actual files from Credit-Bureau files to demonstrate statistical issues that may affect the ability of scoring systems to accurately quantify an individual’s credit risk 

Robb: We developed tests of racial bias based on comparisons between expectations-based credit scores and repayment-history-based credit scores. Then, we tested for racial bias using data from the Kauffman Firm Survey. Businesses founded by disadvantaged minorities have much lower average business credit scores, but these scores show no evidence of racial bias 

Nelson: I used a novel mortage industry data set that combines household demographic, credit, and financial data with property location information and detailed community attribute data. Results showed that increases in credit score are associated with increases in the consumption of higher priced homes in more expensive school districts, higher-quality public schools and proximity to urban/metropolitan areas. 

Sofia: Wow, that’s interesting! Why did you choose to research this topic? 

Avery: Bureau scores are increasingly being used as an initial and sometimes primary screen for applicants seeking credit and are also a prescreening tool for credit solicitations. The growing reliance on bureau scores in underwriting decisions raises statistical issues. 

Robb: Credit scores are predictive of future loan performance and suggest that scoring increases the accuracy of risk assessment. This benefits lenders but they can also serve interest of borrowers by expanding credit opportunities and improving the efficiency of the credit review process. I wanted to investigate why this was. 

Nelson: Similar to what Robb is saying, we know little about how credit scores influenced residential location decisions. By linking homebuyer attributes from a mortgage industry data set, to housing-specific community attributes, we can analyze the effects of credit scores on residential sorting across housing choices with varying public amenities. 

Sofia: In your opinion, how are people’s lives impacted by bad credit? 

Avery: Bureau scores are constructed only from information on the individual’s credit history. If you have bad credit, your life can be greatly impacted. You won’t be able to rent/buy homes, apply for credit cards and so much more. 

Robb: Like Avery said, a person’s life can be negatively impacted in many ways by bad credit. In an entrepreneurial perspective, minority owned businesses pay higher interest rates on business loans than white borrowers with similar characteristics.  

Nelson: Credit scores have a profound impact on home purchasing power and mortgage pricing. Individuals with poor credit scores will pay higher mortgage interest rates and will qualify for lower mortgage amounts.